Gold caught between central bank demand and a stiff US Dollar headwind

A stiff US Dollar headwind

The rising tide is the long-term bull case: central banks still diversifying reserves, Asian demand still broad enough to matter, fiscal doubts still simmering beneath the surface, and the prospect that Western ETF money eventually returns when the Fed’s hawkish grip begins to loosen. That story has not disappeared. It has simply been pushed below the waterline.

The headwind is the US Dollar

For now, gold is trying to stabilize while the dollar continues to draw support from higher US yields, little-to-no easing expectations on the immediate horizon, and a USD/JPY carry trade that has not yet lost its balance. The dollar does not need to surge every day to pressure bullion. It simply needs to remain firm enough to remind investors that cash and duration still offer a return, while gold offers none.

That is why the move below $4,000 mattered

It was not just another technical level giving way. It was a test of whether the market had enough underlying demand to catch itself. So far, the answer appears to be maybe. But maybe is never an excuse to open a trade. Gold has bounced, but it has not built the sort of base that would make a trader believe a new leg higher is being quietly assembled beneath the surface.

The $4,100 area matters again, but not because it is another line on a chart. It is where the market needs to prove that fresh demand can absorb the supply still waiting overhead. Until gold can reclaim that ground and make it hold, every rally risks becoming a release valve for exhausted longs, ETF buyers who have been waiting for a better exit, and short-term macro money happy to sell strength back into a firm dollar.

That is the awkward part of the current setup. Gold still has believers, but not enough fresh buyers.

The ETF backdrop explains much of that. Global investment flows have softened, leaving the market without the marginal demand needed to turn a dip into a proper recovery. When those flows are weak, rallies become fragile. They rise on short covering, bargain hunting and a little physical demand, but they struggle to develop the broad, confident sponsorship needed to clear the next hurdle.

My read from Aura Gold in Bangkok adds another layer. Despite the recent slide in dollar gold, the skew is still marginally more toward Bangkok sellers than buyers. That is not necessarily a vote against gold as an asset. It may simply be a sign that households are increasingly using bullion as a source of liquidity while the inflation impulse works its way through the region.

Gold is not being discarded. It is being cashed in.

That is a subtle but important distinction. It suggests that local Asia physical demand may not yet be strong enough to serve as a cushion beneath the market, even if the broader structural case remains intact.

And that broader case is still difficult to ignore.

The institutional bull framework remains centred on the same forces that have been building for years: reserve diversification, persistent official-sector demand, fiscal uncertainty and the possibility that private investment demand returns once the opportunity cost of owning gold falls. Goldman’s bull case was never really about a clean straight-line move higher. It was about the deeper reallocation of capital once investors began to lose faith that dollar assets could carry the entire load forever.

That is still the longer-term story.

But markets are not paid to trade the destination. They are paid to survive the weather.

Right now, the weather is still being made in Washington and traded through the U.S. dollar. Gold is behaving less like a portfolio hedge and more like the old rates-sensitive asset it has always been, trying to find solid ground while the dollar casts a long shadow across the market. As long as yields remain sticky, the dollar holds its altitude and the USDJPY carry trade continues to pay its rent, gold rallies are likely to feel laboured—more uphill slog than breakout run.

This does not mean the bull market is over. It means the bull market is being made to earn its next advance.

The trade, in my view, remains to sell rallies until the market gives us something more durable to work with. That does not require becoming bearish on gold. It simply requires recognizing that a structurally bullish market can still spend weeks moving sideways, lower or both while it searches for the right foundation.

The change in tone will come when the dollar begins to lose altitude for the right reasons. Not because of a one-day currency shock or an isolated intervention headline, but because yields are easing, Fed expectations are shifting, ETF outflows are stabilising and gold is finally able to turn $4,100 from a ceiling into a floor.

Until then, gold remains a market with a promising horizon but rough ground beneath its feet.

The long-term bull case is still there.

It is just not yet time to mistake every bounce for the beginning of the next ascent.